9/11/17. Charles Chaplin: Modern times. Kari Tanskanen ja Kari

Transcription

1 Charles Chaplin: Modern times 1

2 Group discussion 1 In groups of 2-4 students, discuss the following questions: What have been the main trends/changes in business environment of industrial firms during last decades How these trends/changes have affected the relative importance and complexity of external resources in industrial firms ENVIRONMENTAL/SOCIETAL TRENDS CHANGES IN THE WAY OF DOING BUSINESS Increasing importance and complexity of external resources 2

3 Our generic model of an industrial organisation has born in times when Undeveloped infrastructure Local supply markets Uneducated and unexperienced employees and thus Most components had to be manufactured internally Typical share of purchased spend was 20-30% The key source of competitive edge was efficiency in production Source: Hankintojen johtaminen ostamisesta toimittajamarkkinoiden hallintaan, Kari, Hanna Pajunen-Muhonen, 4 p, Tietosanoma 2015 In which kind of world do we live now Supply markets are global, rich, cost effective, competitive Broadly educated and multiskilled personnel available In these conditions It is reasonable to make internally only those activities, which can be made in a superior way and effectivity cannot be bought, as there is no reasonable supply would risk the the intellectual property if outsourced The share of purchased spend is typically 80% The source of competitive edge is in effective utilization and management of supply markets and external resources Source: Hankintojen johtaminen ostamisesta toimittajamarkkinoiden hallintaan, Kari, Hanna Pajunen-Muhonen, 4 p, Tietosanoma

4 The change is radical and remarkable Traditionally Firm was seen as a production unit Competitive edge was in efficient production Supply management was a supporting function Now Firm is a nexus of contracts, an integrator Competitive edge is in capability to effectively utilize, integrate and manage global sources to meet the changing customer demands External resource management is an organisation wide core capability Source: Hankintojen johtaminen ostamisesta toimittajamarkkinoiden hallintaan, Kari, Hanna Pajunen-Muhonen, 4 p, Tietosanoma 2015 The share of external resources has increased slowly for a long time External spend - Product related - Indirect - Investments - Hidden spend Internal spend About 50 years ago Today 4

5 External resources: spend perspective 20% 80% Traditionally a firm has been seen to use Internal resources Direct employees (Hierarchic control) External resources Direct spend Indirect spend Investments (Contract control) but a broader view can be argumented 20% 80% Internal resources Direct employees External resources Direct spend Indirect spend Investments and also External sales and delivery networks 5

6 Source: Minna Takala 2011 The traditional ways to manage internal and external resources are very different Market All activities purchased on competitive market conditions Hierarchy All activities are performed by company employees Traditional purchasing orientation Traditional management orientation Source: Hankintojen johtaminen ostamisesta toimittajamarkkinoiden hallintaan, Kari, Hanna Pajunen-Muhonen, 4 p, Tietosanoma

7 but the traditional management models fit weakly to present business realities Competitive markets Traditional purchasing orientation Network forms Multiple legal units Multiple interests, goals Imbalance of knowledge Limited power Fragmentation of management Differences in cultures, experience paths, measures HIerarchy Traditional management orientation Do we have tools and means to meet these management challenges Source: Hankintojen johtaminen ostamisesta toimittajamarkkinoiden hallintaan, Kari, Hanna Pajunen-Muhonen, 4 p, Tietosanoma 2015 The focus of management is still on internal resources, why The change has taken place gradually during a long period of time the slow change has been hidden behind short term variations The internal focus has been institutionalized to management of internal organizations through several mechanism Management training and education Management reporting systems Industry and company dominant logics Source: Kari Cognitive Barriers to External Resource Management Top Management Perspective, Aalto University Dissertation Series

8 Each individual constructs his/her own reality 20% 80% That a firm has boundaries, follows from the nature of the categories we think in, not because we can observe them in reality. Edith Penrose, The theory of the growth of the firm, 3rd ed 1959/95 Practical barriers to effective management of external resources fragmented reporting of the external spend traditional purchasing mindset among the management fragmented silo-structures and organizational cultures functional conflicts, lack of managerial commitment, conflicting and non-transparent processes, policies and procedures simplistic performance measurement, limited information sharing, lack of trust, internal/external resource constraints, and complexity of resource networks 8

9 In the changing business environment the basic questions of purchasing and supply management evolve towards broader formulations What is needed Where to find At what price How to handle How to ensure availability What is the optimal combination of internal and external activities What are the optimal sources of external activities What are the total cost implications What is the optimal relationship with each supplier How to manage and develop the suppliers and supply networks How to manage the supply markets for the future Source: Hankintojen johtaminen ostamisesta toimittajamarkkinoiden hallintaan, Kari, Hanna Pajunen-Muhonen, 4 p, Tietosanoma 2015 New cornestone for success is the ability to combine internal and external resources for creating superior capabilities to capture business opportunities Customer needs, market opportunities Supply market opportunities, external resources Internal core capabilities and resources Capturing business opportunities Source: Hankintojen johtaminen ostamisesta toimittajamarkkinoiden hallintaan, Kari, Hanna Pajunen-Muhonen, 4 p, Tietosanoma

10 What is external resource management Definition: selecting the right combinations of internal and external resources for capturing business opportunities, finding the best available external resources, effectively utilizing the external resources, and influencing the decisions and resource allocation of business partners. Resources are defined as stocks of knowledge, financial assets, physical assets, human capital, and other tangible and intangible factors that a business owns or controls (Capron, Dussauge and Mitchell, 1998, p. 631) External (network) resources encompass resources that accrue to a firm from its ties with key external constituents including but not limited to partners, suppliers, and customers, and thus exist outside a firm s boundaries (Gulati, 2007, p. 3) External resource management calls for change accross the organization Common current state Management of external resources is fragmented across organization (purchasing, sourcing, SCM, sales, marketing, IT, economy, etc). ERM Coordinated management of different external resources, led by top management. Limited skills and capabilities to manage external resources Systematic development of cross organizational capabilities for ERM Emphasis on formal contracts Appreciation of complex reciprocal exchange Either competitive bidding or open Intentional, balanced use of both collaboration are the main mechanism market forces (competition) and social for influencing suppliers and psychological forces in parallel Social and psychological issues Systematic utilization of social and notified only in negotiation context, if any psychological drivers of human behavior (e.g. attractiveness) for influencing attractive external actors 10

11 Critical issues in managing external resources Spend visibility Total cost thinking and modelling Cross-functional collaboration Differentiated category strategies Differentiated supplier relationships Identifying and utilizing global supply market opportunities Utilizing suppliers innovation capabilities From purchasing to external resource management Source: Pekka Lettijeff 11

12 What are categories Category is a group of products or services that form a manageable entity on the global business level, and can be defined as: a set of products and services purchased from the same supply market having similar product or service and spend characteristics Categorization aim at Getting a reasonable control of all the spend Differentiating supply management strategies Allocating internal resources effectively Improving business performance and decreasing total costs Supporting cross-functional integration Categories typically form a hierarchical structure Category structure should be regularly challenged Category structure: a typical example A Globally Operating Finnish Industrial Firm Taxonomy of NPR Goods and Services Site Related HR IT Office apparatus Marketing & Sales Logistics & Distribution Production/ Development Professional Services Facility Management Interim & Temp Labor IT Software Office Furniture Print Packing/ Packaging Insurance Leasing/Rental IT Hardware Office Supplies Storage/ Warehousing Consulting Catering IT Services Mail Logistic/ Transport Tools Car Leasing IT Consumables Telecommunication Tools Utilities Travel Machinery & Equipment Housekeeping Training Production Maintenance Moving 12

13 Defining categories is simple in principle but complex and challenging in practice Do we form a category based on products/services, which are similar based on the same technology used by the same organisation unit used simultaneously from the same industry from the same supplier from the same industry What about PC s and software services Cars and car related services Training and education on ERM and strategic consultancy How to design a (sub)category Market efficiency: category definition should support effective utilization of competition All the spend within a category should be available from a (same/similar) set of competing suppliers The size of the cagegory is so remarkable, that supplier s are interested to compete Process efficiency: Category definition should allow utilization of synergy opportunities at the supplier and the supply chain Internal efficiency: Category definition should build on synergy in internal handling Same use, same users, similar use, users near each other Same handling, delivery, warehousing and logistics processes 13

14 Categories need to be regularly challenged The category definition is a living concept and a tool If there is not enough competition, integrate several similar categories to increas suppiers interest If you are stuck to overly integrated one stop shopping, divide the category into subcategories to get better control and create again competition The differet phases of product lifecycle may also be a reason to divide into subcategories Components needed in emerging, stable and stagnating produts may deserve different handling A spend analysis Spend analysis is the process of collecting, cleansing, classifying and analyzing expenditure data with the purpose of decreasing procurement costs, improving efficiency, and monitoring compliance. A spend analysis may be carried out in different ways, each serving different purposes: By user product / unit / product line / company / area / continent By use Direct (product related) / Indirect (non product related) By nature materials / components / subassemblies / services / investments By source supplier / industry / geography 14

15 A basic example Observations But real life may look different what does this tell us Source: Jani Laakkonen s master s thesis

16 Example continues 16